The Delhi High Court has upheld the invocation of Revision Power under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT) and held that sale deed is not a revenue document to certify agricultural nature of land for taxation purpose.
The bench of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma has observed that the sale deed executed between the assessee and Vallabham Buildcon mentioned that the land was not fit for agricultural purposes. The PCIT concluded that the evidence provided by the assessee had no evidentiary value compared to the substantial evidence possessed by the department, which proved that no agricultural operations had been conducted by either the assessee or the buyer on the land.
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Background – Sale Deed Is Not A Revenue Document
The appellant/assessee carried her business through a proprietary concern, had filed her return of income, declaring total income of Rs. 2,64,51,220. The return was processed under Section 143(1) of the Income Tax Act and was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS).
A notice under Section 143(2) of the Act was issued on 10.09.2014 and was duly served on the assessee. A notice under Section 142(1) was issued with a questionnaire forming part of it.
In response to the notices, the assessee informed the Assessing Officer, that she had earned long term capital gain on sale of agricultural land, which was situated beyond the prescribed limits of Sohna District in Haryana. To support the same, she had enclosed a certificate issued by Tehsilar, Sohna, which, as claimed by her, was to the effect that the land was situated beyond 8 kms of the municipal limits.
The prescribed limit for Sohna District was 5 kms. Thus, the assessee claimed that the land did not qualify as a capital asset defined under Section 2(14) of the Act, and was thus exempt from capital gains.
An order was passed by the AO under Section 143(3) of the Income Tax Act. The AO held that the assessee had debited expenses of Rs. 4,244/- under the head “Challan and Penalty” and the amount, being non-business in nature, was to be disallowed under Section 37.
The AO also held that the assessee was not able to establish that certain expenditure claimed by her was incurred exclusively for the purpose of business activity, and thus, considering the nature of transactions and volumes of expenses, it was reasonable to disallow 15% of such expenses, under Section 37t. The income of the assessee was thus assessed at Rs. 2,67,48,740.
The PCIT on examination of the assessment record of the assessee pertaining to the AY 2013-14, issued a show cause notice, since the PCIT, upon perusing the records, was of the opinion that the order passed by the AO was erroneous in so far as it was prejudicial to the interests of revenue.
In the show cause notice, the PCIT noted that the AO had framed the assessment on the same day the assessee had submitted the documents, and the AO had accepted the assessee’s version of long- term capital gains viz. the land in question, without verifying the records.
The PCIT mentioned that the AO should not have relied solely on the certificate issued by the Tehsildar, which was issued in a routine manner and without any corroborative evidence. It was also noted that the assessee did not show any agricultural income in her return for AY 2013-14, and that she had purchased the land for Rs. 7,74,80,250 and sold it within a period of nine months, indicating that there was no intention to use the land for agricultural purposes. Therefore, the gains from the sale could not be treated as long-term capital gains, but short-term capital gains.
The PCIT also observed that the assessee had wrongly claimed the said income as exempt income on the ground that the land was situated beyond 8 kms of the municipal limits, in respect of which too, no verification was conducted by the AO.
Even the AO had not taken into account the distance from any other municipality limit, other than Sohna District. Thus, the assessee was given an opportunity of being heard and to show cause as to why the order passed by the AO be not modified or set aside under Section 263 by the PCIT.
The assessee preferred an appeal before the learned ITAT. The ITAT allowed the said appeal and quashed the order passed by the PCIT.
Arguments
The department contended that ITAT has committed an error by not considering clause (a) of Explanation 2 to Section 263 of the Income Tax Act, which provides that jurisdiction can be exercised by the PCIT in case the AO has passed the order without making inquiries or verification which should have been made. A perusal of the order passed by the AO would reveal that it did not conduct inquiries with regard to the claims of the assessee, and did not obtain information from concerned authorities for verification of distance of the land in question from the municipal limits, which is essential for determining whether it is a capital asset.
The assessee contended that Explanation 2 to Section 263 of the Income Tax Act was inserted in the year 2015 and since the present case pertains to AY 2013-14, the Explanation, which explains the scope of order being ‘erroneous insofar as it is prejudicial to the interests of the Revenue’, could not be invoked.
The assessee argued that the PCIT had wrongly assumed jurisdiction under Section 263 of the Act, since the AO had conducted sufficient enquiries and verification and its order could not be held as erroneous. Thus, the order passed by the PCIT under Section 263 of the Income Tax Act was bad in law, and the same was rightly quashed by the learned ITAT.
Relevant Provisions – Sale Deed Is Not A Revenue Document
A “capital asset” is defined under Section 2(14) of the Income Tax Act. Short-term capital gains tax applies to gains arising from transfer of short-term capital assets; whereas long-term capital gains tax applies to gains arising from transfer of long-term capital assets.
Section 2(14) also provides as to what assets would not fall within the meaning of “capital assets” which includes agricultural land. The sale ofagricultural land does not make an assessee liable to pay capital gains tax, either short-term or long-term.
However, to qualify as an agricultural land, the land must meet specific criteria, including its distance from the municipal areas, as stipulated under Section 2(14)(iii)(b) of the Act.
As per the provision (as it stood prior to its amendment i.e. at the time of AY 2013-14), if a land is situated within the distance of 8 kms from the local limits of any municipality, it would be treated as a capital asset and the assessee would be liable to pay the capital gains tax; otherwise, the land would be treated as agricultural land, which does not fall within the meaning of “capital assets”.
Conclusion – Sale Deed Is Not A Revenue Document
The court held that the PCIT had exercised the jurisdiction under Section 263 of the Act correctly and legally, in view of the fact that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee.
The court held that ITAT erred in setting aside the order passed by the PCIT under Section 263 of the Act on the ground that the PCIT had wrongly exercised jurisdiction under Section 263 of the Act.
Read More: Assessment Can’t Be Reopened Merely On The Basis Of Information By Investigation Wing : ITAT
Case Details
Case Title: PR. COMMISSIONER OF INCOME TAX DELHI v/s MS. SANGEETA JAIN
Case No.: ITA 1092/2018
Date: 08.11.2024
Counsel For Appellant: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary
Counsel For Respondent: Ms. Rashmi Chopra
